Cuomo: Ivy Lied to Clients About Madoff Fraud

In a complaint released today, Cuomo says Ivy knew about Bernard Madoff’s giant Ponzi scheme, but intentionally lied to clients because it feared losing over $40 million in fees from the Madoff investments.

Cuomo cites internal emails from Ivy employees joking about Madoff being a fraud even while they were keeping their clients in the dark. Ivy investors, including 76 upstate New York union pension and welfare plans, lost a total of $227 million in Madoff.

The suit also names former Ivy execs Lawrence Simon and Howard Wohl, who Cuomo said “left their clients in the dark” about Madoff even after they had determined they weren’t “satisfied as a fiduciary to invest client assets” with Madoff.

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Cuomo said Simon told a prospective investor in 1991 “that Madoff could be a Ponzi scheme, that they did not know how much he was running.” Simon and Wohl reaped about $100 million each after selling Ivy to Bank of New York in 2000. BNY Mellon began liquidating Ivy last year after a wave of lawsuits from clients.

The damaging information that Ivy discovered about Madoff and then failed to disclose includes:

In 1997, Ivy learned that there were not enough options to support Madoff’s purported trading strategy. Specifically, the volume of Standard and Poor’s 100 Index options (“OEX”) available would only support half of the amount of assets Ivy believed Madoff had under management. This strongly suggested that the trades Madoff had been reporting were not actually being made.

Between 1997 and 1998, Madoff gave Ivy three vastly different explanations as to where and with whom he traded OEX options, all of which were inconsistent with Ivy’s observations and understanding of OEX options.

Ivy received information from industry contacts indicating that Madoff was misusing client assets to fund his broker-dealer business instead of investing the money as he claimed he was doing.

Internal documents obtained through the Attorney General’s investigation reveal that Ivy, Simon, and Wohl knew that investing with Madoff was too much of a risk:

An internal Ivy memorandum from 1997 about Madoff states, “[t]his is a clear example of our inability to make sense of Madoff’s strategy, and one where his trades for our accounts are inconsistent with the independent information that is available to us.”

When writing to a subordinate in 2002, Wohl wrote “Ah, Madoff, You omitted one possibility - he’s a fraud!”

When listing managers who should be recommended to a prospective client in 2003, Wohl wrote, “Madoff (NOT!).”